IN THE UNITED STATES COURT OF APPEALS FOR THE …pub\11/11-30380-CV0.wpd.pdf · Eni subsequently removed the suit to this Court on the basis of federal-question jurisdiction ... entered

$Page 1: IN THE UNITED STATES COURT OF APPEALS FOR THE …pub\11/11-30380-CV0.wpd.pdf · Eni subsequently removed the suit to this Court on the basis of federal-question jurisdiction ... entered$
IN THE UNITED STATES COURT OF APPEALSFOR THE FIFTH CIRCUIT

No. 11-30380

CUTTING UNDERWATER TECHNOLOGIES USA, INCORPORATED,

Plaintiffv.

ENI U.S. OPERATING COMPANY; ENI PETROLEUM U.S., L.L.C.,

Defendants – Cross Claimants –Appellants

v.

T. BAKER SMITH, INCORPORATED,

Counter Defendant – Appellee

Appeal from the United States District Court for the Eastern District of Louisiana

Before KING, WIENER, and HAYNES, Circuit Judges.

PER CURIAM:

Appellants Eni U.S. Operating Company and Eni Petroleum U.S., L.L.C.,

appeal from the district court’s grant of summary judgment in favor of Appellee

T. Baker Smith, Inc. The appeal concerns construction and application of the

Louisiana Oil Well Lien Act, LA. REV. STAT. ANN. § 9:4861, et seq. (2007), on an

issue of first impression. The district court authored a thorough and well-

United States Court of AppealsFifth Circuit

F I L E DFebruary 14, 2012

Lyle W. CayceClerk

Case: 11-30380 Document: 00511758696 Page: 1 Date Filed: 02/14/2012

No. 11-30380

reasoned opinion concerning the substantive issues presented, which we attach1

and adopt as the opinion of this court. Cutting Underwater Techs. USA, Inc. v.

Con-Dive, L.L.C., Civil Action No. 2:09-CV-387, 2011 WL 1103679, 2011 U.S.

Dist. LEXIS 29325 (E.D. La. Mar. 22, 2011).

AFFIRMED.

The conclusions in Section III.A. of the district court opinion, concerning evidentiary1

objections, were not appealed; we therefore need not express an opinion as to those matters.

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No. 11-30380

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

CUTTING UNDERWATER TECHNOLOGIES *CIVIL ACTION

USA, INC. *

* NO. 09-387

VERSUS *

* SECTION "L"(2)

CON-DIVE, LLC ET AL. *

ORDER & REASONS

Before the Court is a Motion for Summary Judgment (Rec. Doc. No. 83) filed by T.

Baker Smith, Inc. (TBS), a Motion for Summary Judgment (Rec. Doc. No. 75) filed by Eni

U.S. Operating Co. and Eni Petroleum U.S., LLC (collectively Eni), and a Motion to Strike

the Affidavit of Scot Childress (Rec. Doc. No. 101) filed by TBS. The Court has reviewed

the submitted memoranda and the applicable law and is ready to rule. For the following

reasons, TBS’s motion for summary judgment is granted, and Eni’s cross-motion is denied.

In addition, the motion to strike is treated as an objection and sustained in part and overruled

in part.

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No. 11-30380

I. BACKGROUND AND PROCEDURAL HISTORY

This case arises out of contracts for the provision of services in connection with the removal

of a toppled platform on the Outer Continental Shelf (OCS). In September 2005, Hurricane Rita1

toppled and dismantled the Vermilion Block 313-A platform located offshore Vermilion Parish,

Louisiana. At that time, the platform was no longer in service, the oil and gas wells to which it was

connected had been plugged, and the casings connecting the wells to the platform had been cut. In

March 2007, Dominion Exploration & Production, Inc., the then-lessee, entered into a contract with

Con-Dive, LLC, under which Con-Dive agreed to remove the toppled platform. In turn, Con-Dive

subcontracted various work to T. Baker Smith, Inc. (TBS), Cutting Underwater Technologies USA,

Inc., and Cheramie Marine LLC. In its contract with Dominion, Con-Dive warranted that it would

not allow any liens to be asserted over Dominion’s property.

In June 2007, Dominion conveyed 50 percent of its record title and operating rights in the

lease to Eni Petroleum. Together with Eni Operating, Eni Petroleum also acquired all of Dominion’s

contractual rights and obligations relating to the lease. Con-Dive eventually failed to pay TBS and

the other subcontractors for the services they rendered. In response, in October 2008, Cutting

Underwater filed suit in state court against Con-Dive. In November and December 2008, TBS,

Cutting Underwater, and Cheramie Marine also recorded liens over Eni’s property in the records of

Vermilion Parish. In January 2009, Cutting Underwater amended its state court petition, adding Eni

as defendant. In its petition, Cutting Underwater asked that Con-Dive be held liable for breach of

contract and that its lien over Eni’s property be recognized as valid under the Louisiana Oil Well

Lien Act (LOWLA), La. Rev. Stat. Ann. § 9:4861 et seq.

This factual background reflects the allegations made in the pleadings of Eni and1

TBS. This section should not be construed as findings of fact.

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No. 11-30380

Eni subsequently removed the suit to this Court on the basis of federal-question jurisdiction

under the Outer Continental Shelf Lands Act, 43 U.S.C. § 1331 et seq. A flurry of pleadings were

then filed, resulting in various additional claims being asserted. In particular, Eni made claims

against Con-Dive for breach of contract and against Cutting Underwater, TBS, and Cheramie Marine

for invalid liens under LOWLA. Similarly, TBS and Cheramie Marine asserted claims against Con-2

Dive for breach of contract and against Eni for recognition and enforcement of their liens. In3

September 2009, Cheramie Marine settled all of the claims that were asserted by it and against it,

and in October 2009, Cutting Underwater did the same. This left in place the lien-related claims that

TBS and Eni asserted against each other, as well as the breach-of-contract claims that TBS and Eni

asserted against Con-Dive.

In January 2010, TBS filed a motion for summary judgment on its breach-of-contract claim

against Con-Dive. In February 2010, the Court granted the motion as unopposed and, on the motion

of TBS, entered judgment pursuant to Federal Rule of Civil Procedure 54(b). Since then, however,

Con-Dive has not satisfied that judgment. As a result, the dispute between TBS and Eni regarding

the validity of TBS’s lien remains pending, and it is that which is the subject of the present motions.4

Although Eni styled its claims against TBS and Cheramie Marine as counterclaims,2

they are more appropriately viewed as third-party claims, for TBS and Cheramie Marine werenot parties in this case before Eni asserted claims against them and thereby impleaded themas third-party defendants. See Fed. R. Civ. P. 14.

TBS’s pleading does not expressly name Eni as a counter-defendant, but paragraph3

17 of its counterclaim and its prayer for relief indicate that it has instituted an action againstEni for the recognition and enforcement of its lien under LOWLA. See TBS Answer (Rec. Doc.No. 30). Eni has understood TBS to have asserted such a claim, and accordingly, it has filedan answer to that claim. See Eni Answer (Rec. Doc. No. 31).

In seeking recognition and enforcement of its lien, TBS also asserts that it is entitled4

to the cost of preparing and filing the lien and to attorney’s fees pursuant to La. Rev. Stat.Ann. § 9:4862(B). The Court does not reach these issues, which were not addressed in theparties’ motions.

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No. 11-30380

II. PRESENT MOTIONS

A. Cross-Motions for Summary Judgment

In its Motion for Summary Judgment and its opposition to TBS’s cross-motion, Eni argues

that TBS’s lien is invalid because it did not perform an “operation” within the meaning of LOWLA.

La. Rev. Stat. Ann. §§ 9:4861(4)(a), 9:4862(A)(1). In particular, Eni asserts that the work undertaken

by TBS was neither performed “for the purpose of . . . abandoning a well” nor done “on a well site.”

Id. § 9:4861(4)(a). Eni argues that the wells attached to the Vermilion Block 313-A platform had

been plugged and that the casings that connected the platform to the wells had been cut in 1999.

According to Eni, this forecloses a finding that any work subsequently performed involves

“abandoning a well.” Id. Eni also contends that for work to be performed “on a well site,” it must

have been “physically carried out” on such a site.

In its own Motion for Summary Judgment and its opposition to Eni’s cross-motion, TBS

asserts that its lien is valid under LOWLA, and it disputes both of the arguments raised by Eni. TBS

states that the work that it performed was a necessary part of “abandoning a well” within the

meaning of the statute. TBS emphasizes that once wells connected to a platform are no longer in

production, the applicable federal regulations require the lessee not only to plug the wells, but also

to remove the production platform. TBS argues that in light of this requirement, the work that it

performed is part and parcel of the process by which Eni abandoned the depleted wells. In addition,

TBS asserts that the work it performed was on a “well site” as defined by LOWLA because it was

present in Vermilion Block 313 near the vicinity of the platform in order to deliver the survey and

positioning services that it was asked to provide.

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No. 11-30380

B. Motion to Strike the Affidavit of Scot Childress

Separately, TBS has filed a Motion to Strike the Affidavit of Scot Childress, which

Eni has supplied along with its Motion for Summary Judgment (Rec. Doc. No. 75-6). TBS

specifically objects to paragraph 11 of the affidavit on the ground that it states an ultimate

conclusion in this case. TBS also challenges paragraphs 7 through 13 of the affidavit on the

ground that the statements are not based on personal knowledge. Eni opposes the motion. Eni

argues that Mr. Childress’s statement in paragraph 11 does not state an ultimate conclusion.

It also asserts that given Mr. Childress’s employment with Dominion and Eni, he has

personal knowledge to testify as to the matters addressed in paragraphs 7 through 13 of his

affidavit.

III. LAW AND ANALYSIS

TBS’s Motion to Strike affects the scope of the record that is to be considered in

deciding the parties’ cross-motions for summary judgment. Accordingly, the Court will first

address that motion and then discuss the cross-motions.

A. Motion to Strike the Affidavit of Scot Childress

Rule 56 of the Federal Rules of Civil Procedure allows a party to provide an affidavit

to support or oppose a motion for summary judgment. See Fed. R. Civ. P. 56(c)(1)(A). Such

affidavits, however, “must be made on personal knowledge, set out facts that would be

admissible in evidence, and show that the affiant . . . is competent to testify on the matters

stated.” Id. 56(c)(4). Prior to December 1, 2010, the proper method by which to attack an

affidavit was by filing a motion to strike. See, e.g., Rushing v. Kan. City S. Ry. Co., 185 F.3d

7


No. 11-30380

496, 506 (5th Cir. 1990), superseded on other grounds by Fed. R. Evid. 103(a); see also 10B

Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2738 (3d ed.

2004). Under the now-applicable Rule 56(c)(2), however, it is no longer necessary for a5

party to file such a motion; instead, the party may simply object to the material. See Fed. R.

Civ. P. 56 advisory committee’s note to 2010 amendments (“There is no need to make a

separate motion to strike.”). In light of this change, TBS’s Motion to Strike will be treated

as an objection.

As noted above, TBS objects to paragraph 11 of Mr. Childress’s affidavit on the

ground that it states an ultimate conclusion. Though resisted by Eni, this argument has merit.

Indeed, “ultimate or conclusory facts and conclusions of law . . . cannot be utilized on a

summary-judgment motion.” Wright & Miller, supra, § 2738; see also Galindo v. Precision

Am. Corp., 754 F.2d 1212, 1221 (5th Cir. 1985). Here, one of the questions that is presented

by the cross-motions is whether the work that TBS performed is an “activity for the purpose

of drilling, completing, testing, producing, reworking, or abandoning a well” and thus an

“operation” within the meaning of LOWLA. See La. Rev. Stat. Ann. § 9:4861(4)(a)(i).

Answering this question requires the Court to interpret the statutory phrase “abandoning a

well” and then apply that interpretation to the facts of this case.6

Rule 56(c)(2) provides that “[a] party may object that the material cited to support5

or dispute a fact cannot be presented in a form that would be admissible in evidence.” Fed. R.Civ. P. 56(c)(2).

This matter is on cross-motions for summary judgment. Ordinarily, this would6

require the Court to resolve the disputed facts in favor of TBS with respect to Eni’s motion andto resolve the disputed facts in favor of Eni with respect to TBS’s motion. As noted below,however, the facts that are determinative of this question are not disputed.

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No. 11-30380

In paragraph 11 of his affidavit, Mr. Childress states that none of the work performed

by TBS “involved drilling, completing, testing, producing, reworking, or abandoning any of

the wells.” Eni’s Ex. 2 para 11 (Rec. Doc. No. 75-6). Eni contends that a statement by Mr.

Childress that TBS performed an “operation” would be an ultimate conclusion, but that his

statement that TBS did not do work that involved “abandoning any of the wells” is merely

“a statement of the facts as [Mr. Childress] understands them.” This is not a persuasive

argument. Given how remarkably close Mr. Childress’s statement tracks the language of the

relevant statute, it is difficult not to understand his averment as one that directly states an

answer to the critical question in this case. To the extent that paragraph 11 thus states an7

ultimate conclusion, it is not proper summary judgment evidence and must be disregarded.

TBS also challenges paragraphs 7 through 10, as well as paragraphs 12 and 13, of Mr.

Childress’s affidavit on the ground that Mr. Childress does not have the personal knowledge

to make the statements contained in those paragraphs. This contention is unavailing. Personal

knowledge may be demonstrated by showing that the facts stated “reasonably” fall within the

“‘sphere of responsibility’” of the affiant as a corporate employee. DIRECTV, Inc. v. Budden,

420 F.3d 521, 530 (5th Cir. 2005) (quoting Hodges v. Exxon Corp., 563 F. Supp. 667, 669

(M.D. La. 1983)); see also Rutledge v. Liab. Ins. Indus., 487 F. Supp. 5, 7 (W.D. La. 1979)

(“An official title alone is enough to indicate the basis of personal knowledge . . . .”).

Moreover, personal knowledge does not necessarily mean contemporaneous knowledge. See

It would be a different situation had Mr. Childress stated in his affidavit that, for7

instance, the term “abandoning a well” has a particular technical meaning and that the workperformed by TBS does not fall within the scope of that technical meaning.

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No. 11-30380

Dalton v. FDIC, 987 F.2d 1216, 1223 (5th Cir. 1993). Here, Mr. Childress’s affidavit and his

deposition indicate that during the relevant time period, he has been the manager of

production operations for the lease at issue. See Eni’s Ex. 2 (Rec. Doc. No. 75-6); Eni’s Ex.

2 (Rec. Doc. No. 110-1). This is a sufficient basis upon which to infer that Mr. Childress has

personal knowledge of the facts contained in those paragraphs.

In addition, the record reveals that Mr. Childress was designated as the representative

of Eni under Rule 30(b)(6) of Civil Procedure. See Eni’s Ex. 2 (Rec. Doc. No. 110-1). Under

that rule, a corporate designee “does not testify as to his personal knowledge or perceptions.”

Brazos River Auth. v. GE Ionics, Inc., 469 F.3d 416, 434 (5th Cir. 2006). Rather, “he testifies

‘vicariously,’ for the corporation, as to its knowledge and perceptions.” Id. (quoting

Resolution Trust Corp. v. S. Union, 985 F.2d 196, 197 (5th Cir. 1993)). There is no

indication, beyond the mere fact that Mr. Childress had not reviewed certain documents, that

he was unprepared to testify as to the matters addressed in paragraphs 7 through 10, as well

as 12 and 13, of his affidavit. Thus, Mr. Childress’s status as the designee of Eni further

indicates that these statements constitute competent summary judgment evidence.

Accordingly, the Court concludes that TBS’s objection to the affidavit of Mr. Childress

under Rule 56(c)(2) is to be sustained as to paragraph 11, but overruled in all other respects.

B. Cross-Motions for Summary Judgment on the Validity of TBS’s Lien

Having addressed TBS’s Motion to Strike, the Court is now ready to discuss the cross-

motions for summary judgment. The Court will first describe the generally applicable

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No. 11-30380

standard of review for motions for summary judgment. The Court will then analyze the

applicable law and answer the two key questions that the parties have raised in their briefs.

1. Standard of Review

A district court can grant a motion for summary judgment only when “the movant

shows that there is no genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(a). When considering a motion for summary

judgment, the district court “will review the facts drawing all inferences most favorable to

the party opposing the motion.” Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577, 578

(5th Cir. 1986). The court must find “[a] factual dispute . . . [to be] ‘genuine’ if the evidence

is such that a reasonable jury could return a verdict for the nonmoving party . . . [and a] fact

. . . [to be] ‘material’ if it might affect the outcome of the suit under the governing

substantive law.” Beck v. Somerset Techs., Inc., 882 F.2d 993, 996 (5th Cir. 1989) (citing

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

“If the moving party meets the initial burden of showing that there is no genuine issue

of material fact, the burden shifts to the non-moving party to produce evidence or designate

specific facts showing the existence of a genuine issue for trial.” Engstrom v. First Nat'l

Bank of Eagle Lake, 47 F.3d 1459, 1462 (5th Cir. 1995). The mere argued existence of a

factual dispute will not defeat an otherwise properly supported motion. See Anderson, 477

U.S. at 248. “If the evidence is merely colorable, or is not significantly probative,” summary

judgment is appropriate. Id. at 249-50 (citations omitted).

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No. 11-30380

2. The Validity of the Lien

a. The applicable law

This Court has subject matter jurisdiction over the instant matter pursuant to the Outer

Continental Shelf Lands Act (OCSLA). See 43 U.S.C. § 1349(b)(1). In enacting that statute,

Congress declared that the United States has jurisdiction over the seabed and subsoil of the

OCS. See id. § 1332(1). Congress also “extended” the application of federal law to the OCS

“as if the [OCS] were an area of exclusive Federal jurisdiction located within a State.” Id.

§ 1333(a)(1). Finally, Congress declared that “[t]o the extent that they are applicable and not

inconsistent with [federal law],” the laws of the adjacent states are “the law[s] of the United

States” on the OCS. Id. § 1333(a)(2)(A). As the Supreme Court has explained, this last

provision reflects Congress’s recognition that “the Federal Code was never designed to be

a complete body of law in and of itself,” Rodrigue v. Aetna Cas. & Sur. Co., 395 U.S. 352,

358 (1969), and that as a consequence, there is a need “to fill the substantial ‘gaps’ in the

coverage of federal law,” Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 480 (1981).

Thus, under the OCSLA, state law may be applicable to disputes arising out of the OCS,

albeit “only as surrogate federal law.” Rodrigue, 395 U.S. at 357.

The Louisiana Oil Well Lien Act (LOWLA) was significantly revised in 1995. See

La. Rev. Stat. Ann. § 9:4861 historical and statutory notes; see also Patricia H. Chicoine, Lien on

LOWLA; It’s a Privilege: Recent Revisions to the Louisiana Oil Well Lien Act, 57 La. L. Rev. 1133,

1133 (1997). The revisions have not, however, disturbed the view of the Fifth Circuit that

LOWLA is applicable as federal surrogate law under the OCSLA. Compare Wilson Indus.,

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No. 11-30380

Inc. v. Aviva Am. Inc., 185 F.3d 492, 493-94 & nn. 1 & 3 (5th Cir. 1999) (applying revised

statute), with Gardes Directional Drilling v. U.S. Turnkey Exploration Co., 98 F.3d 860, 864-

66 (5th Cir. 1996) (applying previous statute), and Union Tex. Petroleum Corp. v. PLT

Eng’g, Inc., 895 F.2d 1043, 1050-51 (5th Cir. 1990) (same). Both TBS and Eni have also

assumed that LOWLA applies. Accordingly, the Court concludes that LOWLA is applicable

as federal law in this case.

Under LOWLA, a subcontractor may assert a lien over the property of an operator or

lessee in order to secure “the price of his contract for operations.” La. Rev. Stat. Ann. §

9:4862(A)(1). By making available this privilege, the statute aims to “protect8

[subcontractors] from the default of those who engage them.” Guichard Drilling Co. v.

Alpine Energy Servs., Inc., 657 So.2d 1307, 1312 (La. 1995). As the Louisiana Supreme

Court has observed, the statute reflects the “policy decision that the lease owners are in a far

better position to ensure payment for the subcontractor’s services than is the subcontractor,

and that the onus should be on the lease owners to ensure that the contractor it hires is solvent

and that it actually makes payment to the subcontractor.” Id. at 1313. The statute “clearly

The statute refers to “contractors,” La. Rev. Stat. Ann. § 9:4862(A)(1), but it broadly8

defines that term as including “a person . . . who, by subcontract with a contractor of theoperator . . . , contracts to perform all or part of the operations contracted for by the operator,”id. § 9:4861(10). The term “operator” means “a lessee who is personally bound by contract . .. to a contractor from whom the claimant’s activities giving rise to the privilege emanate.” Id.§ 9:4861(7). A “lessee” is “a person who owns an operating interest.” Id. § 9:4861(6). Eni andTBS do not disagree that Eni is a “lessee” within the meaning of LOWLA. In addition, if theplatform removal project is an “operation,” then Eni is an “operator” and TBS is a “contractor”within the meaning of the statute.

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No. 11-30380

place[s] the risk of the contractor’s insolvency or failure to pay on those with an interest in

the lease.” Id. at 1312-13.

Of course, LOWLA applies only to “operations” encompassed by the statute. La. Rev.

Stat. Ann. § 9:4862(A)(1). Here, the critical question is whether TBS has performed such

“operations.” Id. The statute defines that term as including “every activity conducted by or

for a lessee on a well site for the purpose of drilling, completing, testing, producing,

reworking, or abandoning a well.” Id. § 9:4861(4)(a)(i). In this case, TBS and Eni dispute

whether the work that TBS performed falls within this definition. In particular, Eni argues

that the work that TBS performed was neither done “for the purpose of . . . abandoning a

well” nor performed “on a well site.” Id. TBS rejects this contention. It asserts that the work

it performed was done “for the purpose of . . . abandoning a well” and done “on a well site.”

Id. The Court will address these issues in turn.

b. Whether the work done was “for the purpose of . . . abandoning a well”

In their briefs, Eni and TBS have presented divergent views of the statutory phrase

“every activity . . . for the purpose of . . . abandoning a well.” Id. As noted above, Eni argues

that the process of abandoning wells does not encompass the removal of the platform to

which the wells were connected. Eni contends that once the wells are plugged and the

conductors are cut, any additional work that is performed on the former site of production

is not work that involves “abandoning a well” within the meaning of LOWLA. TBS advances

a different view of the statutory phrase. TBS notes that once the wells that are connected to

a production platform are depleted, lessees are required by federal regulations to implement

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No. 11-30380

a number of decommissioning obligations, including plugging the wells, cutting the

conductors, removing the platform, and clearing the site. TBS asserts that in light of these

requirements, work done to remove a platform is in fact part and parcel of the process of abandoning

the wells that were connected to the platform.

This is a close question, one that appears to be res nova, and both parties have

presented strong arguments. The Court, however, is persuaded that TBS has the correct view

of the statute. As one commentator has observed, “[t]he definition of ‘operations’ has been

drafted broadly.” Chicoine, supra, at 1137. Indeed, the statutory phrase is aimed at

encompassing “all typical well site activities,” including “[w]ork associated with the

abandonment of wells.” Id. at 1137-38. As further explained below, it is clear that in light

of the applicable federal regulations, the removal of a platform after the depletion of the

wells that are connected to that platform is a common well site activity, one that is, in effect,

part of the process of abandoning the wells. Accordingly, the Court concludes that work done

to remove a platform following the depletion of wells properly falls within the ambit of the

statutory term “operations.”

Federal regulations have long indicated that following well depletion, the removal of

a platform is a typical well site activity and that it is integral to the process of abandoning the

depleted wells connected to the platform. In particular, the federal regulations that have been

in effect since 2002 – and that were thus applicable at the time that TBS participated in the

project at issue – provide that “[w]hen [the] facilities are no longer useful for operations,”

the lessee “must,” among other things, “[p]ermanently plug all wells” and “[r]emove all

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No. 11-30380

platforms and other facilities.” 30 C.F.R. § 250.1703. The predecessor regulations -- which9

took effect in 1997 and were thus applicable in 1999 when the wells attached to Platform

313-A were plugged -- delineated, in a similar fashion, the decommissioning obligations of

a lessee. Under the heading “Abandonment of Wells,” the regulation provided that10

“[l]essees must plug and abandon all well bores [and] remove all platforms or other

facilities.” Surety Bonds for Outer Continental Shelf Leases, 62 Fed. Reg. 27948, 27955

(1997) (codified at 30 C.F.R. § 250.110(b)). These provisions demonstrate that,11

notwithstanding revisions over time, the applicable regulations have carried forward a

longstanding requirement that idle platforms be removed once oil and gas production ceases.

See, e.g., Interpretation Concerning Authority to Depart from OCS Requirements, 48 Fed.

Reg. 31397, 31397 (1983) (noting that “the rules governing OCS operations require the

removal of platforms and other structures no longer in use for oil and gas recovery”).

The regulations exempt lessees and operators from the requirement of removing9

platforms if the structure becomes part of an artificial reef program. See 30 C.F.R. 250.1730.

The term “decommissioning” is the new term for “abandonment.” See Oil and Gas10

and Sulphur Operations in the Outer Continental Shelf—Decommissioning Activities, 65 Fed.Reg. 41892, 41893 (2000). Compare also Mariner Energy, Inc. v. Devon Energy Prod. Co., 690F. Supp. 2d 558, 564 (S.D. Tex. 2010) (“Decommissioning means permanently plugging allwells, removing all platforms and other facilities . . . and clearing the seafloor ofobstructions.”), with Howard R. Williams & Charles J. Meyers, Manual of Oil and Gas Terms(14th ed. 2009) (defining “abandonment” as “[p]lugging a well, removal of installation, andtermination of operations for production from the well”).

This provision was later redesignated as 30 C.F.R. § 250.700(b), see Redesignation11

of 30 C.F.R. Part 250 – Oil and Gas and Sulphur Operations in the Outer Continental Shelf,63 Fed. Reg. 29478, 29479 (1998), and eventually removed and reserved when its now-applicable version was codified at a different subpart of the Code of Federal Regulations in2002, see Oil and Gas and Sulphur Operations in the Outer Continental Shelf –Decommissioning Activities, 67 Fed. Reg. 35398, 35405 (2002).

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No. 11-30380

A variety of reasons underlie the requirement that lessees remove a platform once the

wells to which it is connected are depleted. The Bureau of Energy Management, Regulation

and Enforcement (BOEMRE), which was spun off from the now-defunct Minerals

Management Service (MMS), has made the general observation that “idle infrastructure

poses a potential threat to the OCS environment.” BOEMRE, Notice to Lessees and

Operators No. 2010-G05, Decommissioning Guidance for Wells and Platform 1 (2010)

[hereinafter BOEMRE, NTL]. In particular, the presence of idle platforms may harm

navigation safety. See, e.g., National Research Council, Disposal of Offshore Platforms 53

(1985) (“The Coast Guard is especially concerned about the threat to navigation safety of

permitting offshore platforms to remain in place when they are no longer actively being used

to produce oil and gas.”). BOEMRE has also observed that if not removed in a timely

manner, an idle platform can become “a financial liability . . . if subsequently destroyed or

damaged in a future event such as a hurricane.” BOEMRE, NTL, supra, at 1.

Under the federal regulations, platform removal has become a common activity on the

Gulf of Mexico OCS. The official statistics compiled by BOEMRE underscore this reality.

See BOEMRE, Installation and Removals – Offshore Production Facilities in Federal Waters,

available at http://www.boemre.gov/stats/PDFs/OCSPlatformActivity.pdf (accessed March

22, 2011) [hereinafter BOEMRE, Statistics]. The statistics show that while the number of

platform installations dwarfed the number of platform removals for several decades,

platforms removals eventually increased such that they outnumbered platform installations

in 1992 and 1993. See id. at 1. Those were the years when the Louisiana State Law Institute

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No. 11-30380

began to update LOWLA in order to make it “compatible with the ever changing character

of oil and gas operations.” Chicoine, supra, at 1134. From 1991 to 2000, there were

sufficient platforms removed from the Gulf of Mexico OCS to largely stabilize the number

of platforms in the region. See BOEMRE, Statistics, supra, at 1. And over the last decade,

platform removal has substantially outpaced platform installation, causing the number of

platforms on the Gulf of Mexico OCS to drop from a peak of 4,045 in 2001 to 3,409 in 2010.

Id.

Thus, the story of Platform 313-A is, at its core, the typical story of a platform

removed in accordance federal regulations following the end of oil and gas production. The

record indicates that by April 1999, the wells that were connected to the production platform

were plugged and the associated conductors cut. Eni’s Ex. 1 (Rec. Doc. No. 75-5). Soon

thereafter, in May 1999, a proposed plan to remove Platform 313-A, which had been first

installed in 1975, was submitted to MMS. See TBS’s Ex. 9 (Rec. Doc. No. 98-2). The

proposal suggested that well depletion was the reason for the removal of the platform. See

id. Although a delay subsequently ensued, another proposed plan to remove the platform12

was submitted to MMS in March 2005, see TBS’s Ex. 5 (Rec. Doc. No. 98-2). That proposal

also specified that the platform was to be removed because the “[w]ells are depleted.” Id.

While Hurricane Rita caused yet another delay, TBS’s Ex. 3 (Rec. Doc. No. 98-2), in

2008, after permission to leave the platform as an artificial reef was denied, see Eni’s Ex. 2

The proposal states that the “[p]latform is depleted.” See TBS’s Ex. 9 (Rec. Doc. No.12

98-2). The only reasonable way of understanding that statement is to conclude that it refersto the wells themselves.

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(Rec. Doc. No. 75-6), a proposal to remove the platform was once again submitted, see

TBS’s Ex. H (Rec. Doc. No. 83-3). Thus, the record demonstrates that before the platform

was eventually removed, the successive lessees of Vermilion Block 313 remained aware of

and repeatedly sought to meet their obligation to remove the platform given that the wells

that were connected to it had been depleted. See, e.g., Eni’s Ex. 2 (Rec. Doc. No. 75-6) (“The

Platform had been scheduled to be decommissioned as required by [MMS] . . . .”); TBS’s Ex.

A (Rec. Doc. No. 83-3) (acknowledging that BOEMRE “require[s] the removal of platforms

when wells are depleted”).

What may perhaps make the story of Platform 313-A somewhat unusual is the

substantial amount of time that lapsed between the plugging of the wells and the removal of

the platform that was connected to them. As noted above, the plugging of the wells took

place in 1999, but it was not until 2008 that the platform was removed. The intervention of

Hurricane Rita in 2005 may also distinguish the story of Platform 313-A from those of

others. Neither of these, however, changes the fact that under the applicable federal

regulations, the removal of a platform following the depletion of the wells that are connected

to it is a typical well site activity, one that is largely inseparable from the plugging of the

wells and thus, in effect, part and parcel of the process of abandoning the depleted wells.

In its brief, Eni argues that the wells that were connected to the platform were

“plugged and abandoned” in 1999, and it contends that any further work on the former site

of production cannot be considered part of the process of “abandoning a well.” Eni thus

suggests that the term “abandoning a well” should be equated with the term “plugging and

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No. 11-30380

abandoning.” This argument does not take Eni very far, however, because the contours of the

term “plug and abandon” are unclear. As the record demonstrates, “plug and abandon,” on

the one hand, may entail only the placing of cement plugs in a well and the cutting of the

conductors. See Eni’s Ex. 11 (Rec. Doc. No. 96-25). On the other hand, as evidenced by a

host of documents prepared by Eni itself, the term may also be used to encompass a broader

swath of decommissioning activities, such as the disposal of a platform. See, e.g., TBS’s Ex.

3 (Rec. Doc. No. 98-2) (“The platform was secured for P&A prior to Rita.”); TBS’s Ex. 4

(Rec. Doc. No. 98-2) (“[T]he platform . . . was planned for P&A but was not removed due

to the hurricane.”).

The inconsistent use of the term “plug and abandon” is evident elsewhere. For

instance, other industry players have used the term to denote the full range of

decommissioning activities mandated by federal regulations. See, e.g., TBS’s Ex. 12 (Rec.

Doc. No. 98-2) (“If CNGP were to P&A the Vermilion 313 ‘A’ platform”); Mariner Energy,

Inc. v. Devon Energy Prod. Co., 690 F. Supp. 2d 558, 570 (S.D. Tex. 2010) (considering a

contract that defined “plugging and abandonment costs” as “including . . . removal and

abandonment of platforms [and] wells”). Courts too have sometimes used the term to refer

to the package of decommissioning obligations that OCS lessees must satisfy. See, e.g., In

re Tri-Union Dev. Corp., 314 B.R. 611, 615 (Bankr. S.D. Tex. 2004) (using the term

“Offshore P & A Obligations” to denote the “obligations to plug and abandon [the] offshore

wells, remove offshore oil and gas platforms, pipelines, facilities, conduct site clearance

operations, and perform additional decommissioning activities”).

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Ultimately, the elusive nature, and potentially expansive scope, of the term “plug and

abandon” is perhaps most clearly demonstrated by the definition supplied in a leading

reference for this area of law. That reference defines “plug and abandon” as “the placing of

a plug in a dry hole, then abandoning the well.” Howard R. Williams & Charles J. Meyers,

Manual of Oil and Gas Terms (14th ed. 2009). What it means to place a plug in a dry hole

is, of course, fairly clear. See id. (defining “dry hole” as “[a] completed well which is not

productive of oil and/or gas or which is not productive of oil and/or gas in paying

quantities”). The definition, however, begs the question of what it then means to “abandon[]

the well.” Id. It, in effect, brings us back to the very initial question. Given the lack of clarity

that surrounds the term “plug and abandon,” the Court is reluctant to simply equate the

statutory phrase “abandoning a well” with that somewhat elusive term. Moreover, it should

be noted, to the extent that “plugging and abandoning” does denote the full range of

decommissioning activities, it indicates that platform removal does fall within the ambit of

the statute.

In its brief, Eni sets forth a related, but distinct argument. Eni notes that after the wells

were plugged and the conductors cut, the wells connected to Platform 313-A were deemed

to be “permanently abandoned.” Eni contends that having thus carried out its obligations

under what is now 30 C.F.R. §§ 250.1710-.1717, any additional work that is performed

cannot be considered as part of “abandoning a well” within the meaning of LOWLA. Eni

thus argues that the phrase “abandoning a well” is limited to the work that is required under

those sections of the Code of Federal Regulations. This argument appears to have some

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force. Like the Court’s analysis above, it recognizes that LOWLA is applied in this case as

surrogate federal law, and it seeks to construct LOWLA in the light of the surrounding body

of federal law. See, e.g., La. Civ. Code art. 13 (“Laws on the same subject matter must be

interpreted in reference to each other”); Branch v. Smith, 538 U.S. 254, 281 (2003) (plurality

opinion) (noting that it is “the most rudimentary rule of statutory construction . . . that courts

do not interpret statutes in isolation, but in the context of the corpus juris of which they are

a part, including later-enacted statutes”).

But the weakness in Eni’s argument is that it does not take into account the shift in

terminology that has occurred in the applicable federal regulations. It is true that previously,

the Code of Federal Regulations had used the term “permanent abandonment.” See Oil and

Gas and Sulphur Operations in the Outer Continental Shelf, 53 Fed. Reg. 10596, 10733

(1988) (codified at 30 C.F.R. § 250.112). The regulations had even used the phrase “plug13

and abandon.” See Surety Bonds for Outer Continental Shelf Leases, 62 Fed. Reg. 27948,

27955 (1997) (codified at 30 C.F.R. § 250.110(b)). But in 2002, the federal regulations14

were revised, and both of these terms were discarded. See Oil and Gas and Sulphur

Operations in the Outer Continental Shelf – Decommissioning Activities, 67 Fed. Reg.

35398, 35406-35409 (2002). Since then, the applicable regulations, including those to which

This provision was redesignated as 30 C.F.R. § 250.702, see Redesignation of 3013

C.F.R. Part 250 – Oil and Gas and Sulphur Operations in the Outer Continental Shelf, 63 Fed.Reg. 29478, 29479 (1998), and eventually removed and reserved when the revised and now-applicable version took effect, see Oil and Gas and Sulphur Operations in the OuterContinental Shelf – Decommissioning Activities, 67 Fed. Reg. 35398, 35405 (2002).

The subsequent history of this provision is discussed in footnote 11.14

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Eni has drawn the Court’s attention, simply use the phrase “permanently plug” instead of

“permanently abandon” or “plug and abandon.” See, e.g., 30 C.F.R. § 250.1703 (noting that

the lessee must “[p]ermanently plug all wells”); see also id. §§ 250.1710-.1717 (same).

This shift in terminology is telling. Indeed, it appears to reflect the recognition that

depleted wells that are attached to a production platform are not properly abandoned until the

full range of decommissioning activities – including the plugging of the wells and the

removal of the platform – is carried out and that, accordingly, it would be inaccurate and

confusing to use the term “permanent abandonment” to denote only one aspect of the

decommissioning process. Eni’s attempt to find significance in the term “permanent

abandonment” is therefore not persuasive. The federal regulations have evolved to make it

clear that the abandonment of wells attached to a platform consists of more than just the

plugging of the wells. While there are discrete decommissioning tasks that a lessee must

perform, they are largely inseparable and, in effect, constitute a single process by which

lessees are to abandon the wells once they are depleted.

Finally, in its brief, Eni invokes the principle that lien statutes are, in general, subject

to strict construction, and it argues that a fundamental distinction must therefore be made

between the plugging of wells and the subsequent removal of a platform. Once again, this

argument has some force, but ultimately, it is also unavailing. The Louisiana Supreme Court

has indeed acknowledged that “[a]s a general rule, lien statutes are stricti juris and should

thus be strictly construed.” Guichard Drilling, 657 So.2d at 1313. But, in the same breadth,

it has also indicated that courts should interpret LOWLA “in a manner which will effectuate

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its purposes” and that the courts should not “erect artificial barriers to its enforcement.” Id.;

cf. Phillips Petroleum Co. v. Best Oilfield Servs., Inc., 48 F.3d 913, 916 (5th Cir. 1995)

(noting that a “reasonable construction” must be considered before adopting a strict

construction). The court has thus cautioned that the narrowest construction of the statute is

not invariably the correct one.

While LOWLA may not be “a model of clarity,” Ogden Oil Co. v. Servco, Div. of

Smith Int’l, Inc., 611 F. Supp. 572, 576 (M.D. La. 1985), it is aimed at encompassing “all

typical well site activities,” including “[w]ork associated with the abandonment of wells,”

Chicoine, supra, at 1137. As discussed above, the applicable federal regulations that govern

oil and gas operations on the OCS clearly indicate that the removal of a platform following

the depletion of the wells that are connected to it is a typical well site activity that it is, in

effect, part and parcel of the process of abandoning the depleted wells. In light of this

regulatory scheme, it is clear that to accept Eni’s contention that LOWLA does not

encompass any work that is performed subsequent to the plugging of the wells would be to

establish the sort of “artificial barrier” against which the Louisiana Supreme Court has

warned. Guichard Drilling, 657 So.2d at 1313.

In light of the foregoing, the Court therefore concludes that work performed to remove

a platform following the depletion of the wells connected to that platform constitutes work

done to “abandon[] a well” under LOWLA. La. Rev. Stat. Ann. § 9:4861(4)(a)(i). The

application of this statutory phrase to the facts of this case is straightforward. Here, the

undisputed facts show that along with several other subcontractors, TBS took part in a

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project to remove Platform 313-A after the wells to which it was connected had become

depleted. See, e.g., TBS’s Ex. D-A (Rec. Doc. No. 83-3). The Court therefore concludes that

the work performed by TBS is done “for the purpose of . . . abandoning a well” within the

meaning of LOWLA. La. Rev. Stat. Ann. § 9:4861(4)(a)(i).

b. Whether the work was done “on a well site”

The remaining question is whether TBS performed work “on a well site.” Id. §

9:4861(4)(a). LOWLA defines the term “well site” as “the area covered by the operating

interest,” id. § 9:4861(12)(a), a term that denotes “a mineral lease . . . or an interest in a lease

. . . that gives the lessee, either singly or in association with others, the right to conduct the

operations giving rise to the claimant’s privilege,” id. § 9:4861(5)(a). One commentator has

observed that this definition provides “broader” coverage than the previous version of

LOWLA, “which tied the provision of services or equipment to the ‘well or wells’”

themselves. Chicoine, supra, at 1142. Under the now-applicable statute, “the well site is not

restricted to the exact physical location of a well.” Id.

In this case, the essential facts that are relevant to the question of whether TBS

performed work “on a well site” are not in dispute. La. Rev. Stat. Ann. § 9:4861(4)(a). The

parties agree that Eni is the owner of 50 percent of the record title and operating rights in the

lease that encompasses Vermilion Block 313, see Eni’s Ex. 2 (Rec. Doc. No. 75-6); that Eni

has thereby acquired the right to drill, produce, and abandon oil and gas wells in Block 313,

see TBS’s Ex. A (Rec. Doc. No. 83-3); and that the toppled platform that was removed,

Platform 313-A, was located in the block encompassed by the lease, see id.

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No. 11-30380

The undisputed evidence also shows that under its subcontract, TBS conducted a sonar

survey of the site prior to the removal of the toppled platform; assisted with the positioning of

vessels, divers, and equipment during the removal operation; and conducted a post-salvage survey

of the site. See TBS’s Ex. D-A (Rec. Doc. No. 83-3); TBS’s Ex. D-B (Rec. Doc. No. 83-3);

Eni’s Ex. 2 (Rec. Doc. No. 75-6). The performance of these tasks required TBS personnel

to be in Vermilion Block 313. See TBS’s Ex. D-A (Rec. Doc. No. 83-3); TBS’s Ex. D-B

(Rec. Doc. No. 83-3). Thus, TBS personnel was onboard the M/V OCEAN COMMANDER,

which was used as a primary vessel for the removal project and deployed to Vermilion Block

313. See, e.g., Eni’s Ex. 2 (Rec. Doc. No. 75-6); TBS’s Ex. D-B (Rec. Doc. No. 83-3). In

light of these undisputed facts, and given that “the well site” under LOWLA “is not restricted

to the exact physical location of a well,” Chicoine, supra, at 1142, it is clear that TBS

rendered services “on a well site” within the meaning of the statute.

In its brief, Eni cites several cases for the contrary proposition, but all of these cases

are distinguishable. In both Matte Services Corp. v. ONYX Consulting Engineers, LLC, No.

06-3020, 2007 WL 1087592 (E.D. La. 2007), and J. Ray McDermott, Inc. v. Berry

Contracting L.P., Nos. 03-2054 & 03-2099, 2004 WL 224583 (E.D. La. 2004), the

subcontractors were given contracts to construct decks that were to be subsequently installed

on structures on the OCS. See Matte Servs., 2007 WL 225483, at *1; J. Ray McDermott,

2004 WL 224583, at *1. The subcontractors conceded that most, if not all, of the work that

they performed was done onshore. See Matte Servs., 2007 WL 225483, at *3; J. Ray

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No. 11-30380

McDermott, 2004 WL 224583, at *8. Here in contrast, it is undisputed that TBS provides its

labor and services in Vermilion Block 313 in the vicinity of Platform 313-A.

The third and last case cited by Eni is also distinguishable. In Samedan Oil Corp. v.

Ultra Fabricators, Inc., 737 So.2d 846 (La. Ct. App. 3d Cir. 1999), the court considered the

application of the former version of LOWLA, see id. at 853. Given that the now-applicable

version of LOWLA provides a “broader” conception of the term “well site,” Chicoine, supra,

at 1142, the conclusion of the court in Samedan Oil that the lien holder did not perform work

at the requisite location is of little significance. Furthermore, Samedan Oil is factually

distinguishable because the party that asserted the lien in that case merely leased cranes for

the construction of platforms and structures, id. at 848, and those cranes were placed at an

onshore site, id. at 853. As noted above, TBS in this case provided labor and services

offshore in Vermilion Block 313.

In sum, the Court concludes that by providing survey and positioning services in

Vermilion Block 313 in order to help remove a platform following well depletion, TBS

performed “operations” under LOWLA. La. Rev. Stat. Ann. § 9:4861(4)(a). The work that

it did was both “on a well site” and involved “abandoning a well” within the meaning of the

statute. Id. Accordingly, the lien that it has asserted is valid and enforceable. See id. §

9:4862(A)(1).

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IV. CONCLUSION

For the foregoing reasons, IT IS ORDERED that TBS’s Motion to Strike the

Affidavit of Scot Childress (Rec. Doc. No. 101) is treated as an objection and hereby

SUSTAINED IN PART AND OVERRULED IN PART as set forth above.

IT IS FURTHER ORDERED that TBS’s Motion for Summary Judgment (Rec. Doc.

No. 83) is hereby GRANTED. As noted above, the Court does not reach the issue of

miscellaneous relief claimed by TBS under La. Rev. Stat. Ann. § 9:4862(B).

IT IS FURTHER ORDERED that Eni’s Motion for Summary Judgment (Rec. Doc.

No. 75) is hereby DENIED. Eni’s claim that the TBS lien is invalid and unenforceable is

hereby DISMISSED with prejudice.

New Orleans, Louisiana, this 22nd day of March, 2011.

________________________________

UNITED STATES DISTRICT

JUDGE

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Documents

IN THE UNITED STATES COURT OF APPEALS FOR THE …pub\11/11-30380-CV0.wpd.pdf · Eni subsequently removed the suit to this Court on the basis of federal-question jurisdiction ... entered